I was happily contributing $750/pay check to my 401K plan starting in January, planning to max out at $18,000 by the end of the year. Then I was laid off in the middle of May. So I only contributed approximately $7,000 at that point. There was no match.
At my current (new) employer I am eligible to start contributions effective next paycheck, October 31st. Assuming I stay here through the end of December (long story, but I am not planning to stay here for long; starting new job search in November). I have 5 paychecks to use for my 401K contributions to try to max it out for the year. There is no match either.
I have elected to contribute $1,900 per check, so combined with my 401K contributions from earlier this year, it will total about $16,500 for the whole year, not the max but close enough.
Doing this, I will be basically left with about $500 paycheck after the 401K deduction. I will know the exact amount after I get paid on 10/31. This means that I will need to live on cash savings through the end of the year. My best estimate that I will need to pull about $3,000 per month from my savings for November and December. So about $6,000 in total. I have enough cash to do so (about $37K of cash at the moment), but it will eat into my emergency fund.
The benefit of doing this is that it will reduce my taxes for the year significantly and will put money into 401K. Also, I can always change my contribution amount 5 days before any paychecks.
I am a single income, so not pulling money from emergency fund is not an option and the mount I listed above is what I will need to pull. No way to reduce it, it is already reduced as much I could. And I already maxed out my IRA and on track to max out HSA account by 12/31.
I have a feeling that this is a good strategy, but I am not sure how I feel about reducing my cash reserves. Can you please weigh in on this strategy. Yey or nay?